Founder-Ceos, Investment Decisions, and Stock Market Performance

51 Pages Posted: 19 Oct 2004 Last revised: 7 Aug 2008

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Date Written: August 8, 2007

Abstract

Eleven percent of the largest public U.S. firms are headed by the CEO who founded the firm. Founder-CEO firms differ systematically from successor-CEO firms with respect to firm valuation, investment behavior, and stock market performance. Founder-CEO firms invest more in R&D, have higher capital expenditures, and make more focused mergers and acquisitions. An equal-weighted investment strategy that had invested in founder-CEO firms from 1993{2002 would have earned a benchmark- adjusted return of 8.3% annually. The excess return is robust; after controlling for a wide variety of firm characteristics, CEO characteristics, and industry affiliation, the abnormal return is still 4.4% annually. The implications of the investment behavior and stock market performance of founder-CEO led firms are discussed.

Keywords: Founder-CEOs, managerial characteristics, corporate behavior

JEL Classification: G32, G34

Suggested Citation

Fahlenbrach, Rüdiger, Founder-Ceos, Investment Decisions, and Stock Market Performance (August 8, 2007). Dice Center Working Paper No. 2004-20; Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; Fisher College of Business Working Paper No. 2004-01-001. Available at SSRN: https://ssrn.com/abstract=606527 or http://dx.doi.org/10.2139/ssrn.606527

Rüdiger Fahlenbrach (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

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